Permanent salary rises for City workers were well ahead of pay settlements awarded to employees in the rest of the UK. Photo: David Levene

Workers in the City of London who have seen contentious bonus payouts shrink by 8% over the last 12 months have more than made up for their loss through a permanent 7% rise in basic salaries, according to a study published today.

Bonuses paid to City workers fell from £7.3bn to £6.7bn for the year to April, the Centre for Economics and Business Research (CEBR) says, but these purported performance-linked payouts remain a step above levels recorded in 2009, when the worst banking crisis since the 1930s saw the City's bonus pool dip to £5.3bn.

However, more than offsetting the impact of shrinking City bonuses, basic salaries in the Square Mile – which still make up the lion's share of pay deals for most City workers – jumped 7%, according to CEBR's analysis of official data from the Office for National Statistics.

Lord Oakeshott, the Liberal Democrat peer who resigned as a party spokesman in protest at what he saw as the coalition's failure to curb banking industry excesses, said: "Real incomes are now being seriously squeezed in the rest of Britain but City pay just sails merrily on."

Permanent salary rises for City workers were well ahead of pay settlements awarded to the rest of the UK's employees. They ensure City workers are more than equipped to weather the soaring cost of living brought about by global demand for oil and food.

Average wage settlements were up just over 2% for the UK as a whole over the same period, while the retail price index measure of inflation – commonly used as a benchmark for wage negotiations – stood at 5.3% for March.

Revelations about spiralling City pay come just two months after an uneasy compromise, known as the Project Merlin deal, was struck between the government and Britain's big five lenders – Barclays, Lloyds Banking Group, Royal Bank of Scotland, HSBC and Santander – over small business lending and bank pay restraint.

It was instantly branded "toothless" by the shadow chancellor, Ed Balls, and prompted Oakeshott to resign.

Last month new disclosure rules imposed on banks forced Barclays to admit that five top managers had shared annual payouts of £110m despite the group failing to hit its financial targets.

Weeks later it emerged that the new boss of the taxpayer-owned Lloyds Banking Group, Antonio Horta-Osorio, had negotiated a package potentially worth up to £13.4m after receiving a £4.6m "golden hello" on joining.

Scott Corfe, CEBR economist and co-author of the research, said: "City workers are not earning less – their earnings are merely becoming less bonus-driven as basic pay continues to grow much faster than other parts of the economy."